The group’s healthy cash flow is expected to support its ability to deliver generous dividend yields of 6.4% for 2024 and 6.7% for 2025.
PETALING JAYA: Gas Malaysia Bhd
is expected to post a three-year compounded annual growth rate (CAGR) of 7% from 2024 to 2026, driven by higher natural gas volumes and positive operating leverage.
In addition, the group’s healthy cash flow is expected to support its ability to deliver generous dividend yields of 6.4% for 2024 and 6.7% for 2025.
With this projection, UOB Kay Hian (UOBKH) Research upgraded its call on Gas Malaysia to a “buy”, with a higher target price of RM4.30 from RM3.50 previously.
In its report, the brokerage said Gas Malaysia offers a “defensive shelter” with a low beta.
“In the near term, we expect robust earnings driven by better-than-expected natural gas volume growth – driven in part by higher demand from the glove, glass and food and beverage segments – and positive operating leverage,” it said.
“In essence, we expect Gas Malaysia to experience margin expansion on the back of higher natural gas volume given its high capital expenditure business model. As such, we raised 2024 to 2026 net profit by 7% to 16%,” it added.
UOBKH Research said a stronger performance for the second half of 2024 (2H24), likely to be above consensus estimate, would drive Gas Malaysia’s share price performance on the back of higher natural gas volume and positive operating leverage.
The research house noted that Gas Malaysia’s 1H24 earnings were driven by an increased regulated revenue as a result of higher approved natural gas capacity by the government.
“Gas Malaysia’s 2024 regulated revenue is expected to jump RM30mil, as a result of a 10% rise in demand capacity,” it said.
UOBKH Research said full-year natural gas prices are expected to average RM44 to RM45 per tonne, as compared with RM43 per tonne in 2023.
“The marginally lower natural gas prices, we believe, will be offset by higher natural gas volume and greater regulatory profits,” it stated, estimating 2024 natural gas volume to grow 5% to 6% year-on-year.
“Elevated distribution profits will help to buffer relatively flattish natural gas prices expected in 2024. As such, we expect a solid 2024 net profit of RM407mil,” it added.
With Gas Malaysia currently commanding an 80% share of the natural gas retail market, UOBKH Research said naturally, a key risk for the group is the potential loss of retail market share in the longer run.
“Positively, we gathered that Gas Malaysia had renewed at least half of its industrial customer contracts – which were up for renewal on Jan 1, 2025.
“Interestingly, we also understand that some customers have reverted back to Gas Malaysia, having previously pivoted to a competitor for a three-year contract,” it noted.
UOBKH Research said the potential market share gain in the retail segment would be a key re-rating catalyst for Gas Malaysia.
It noted that Gas Malaysia’s improvement in operational efficiency would help create customer stickiness, especially now that contracts are up for re-negotiation this year.
